Fundamental Overview
The USD has been rallying steadily against most major currencies in the recent couple of weeks, although the catalyst behind the move has been unclear. A good argument has been that most of the moves we’ve been seeing were driven by deleveraging from strengthening Yen.
Basically, the squeeze on the carry trades impacted all the other markets. Given the magnitude of the recent appreciation in the Yen and the correlation with many other markets, it looks like this could have been the reason indeed. It will be interesting to see how things evolve in the next days now that the BoJ decision is in the rear-view mirror and if this correlation fades.
From the monetary policy perspective, nothing has changed as the market continues to expect at least two rate cuts by the end of the year and sees some chances of a back-to-back cut in November. Today, we will also have the FOMC rate decision where the Fed is expected to keep rates steady and signal a rate cut in September.
The data continues to suggest that the US economy remains resilient with inflation slowly falling back to target. Overall, this should continue to support the soft-landing narrative and be positive for the general risk sentiment.
The GBP, on the other hand, has been supported against the US Dollar in the past months mainly because of the risk-on sentiment, although the recent events with the Yen boosted the US Dollar against many major currencies.
On the monetary policy front, the market is assigning a 60% probability of a rate cut from the BoE tomorrow although the recent data was a disappointment for the central bank as the UK CPI figures were unchanged from the prior month and the labour market report showed wage growth remaining at elevated levels.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD dropped below the key 1.29 handle and extended the losses as the sellers piled in with more conviction. The natural target should be the major trendline around the 1.2780 level where we can expect the buyers to step in with a defined risk below the trendline to position for a rally into a new cycle high.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a minor downward trendline defining the current bearish momentum. The sellers will likely keep on leaning on it to position for further downside, while the buyers will want to see the price breaking above the trendline and the 1.29 handle to pile in for new highs.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more clearly the recent price action with the trendline acting as resistance. A breakout to the upside should give the buyers more confidence for a rally into new highs, but a break above the 1.29 level would give much more conviction. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US ADP, the US Employment Cost Index and the FOMC Policy Decision. Tomorrow, we have the BoE Policy Decision, the latest US Jobless Claims figures and the US ISM Manufacturing PMI. Finally, on Friday, we conclude the week with the US NFP report.